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Home values and property taxes

Responding to my story today about declining home prices in suburban subdivisions, several readers asserted that property taxes should go down correspondingly.

“As real estate goes down in value, taxes on homes and buildings should also start the decline as they are assessed per RE value,” one wrote in a Soundoff.

They won’t, and it’s not because of some nefarious plot by government bureaucrats. It’s just because of how property taxes work in Washington. Here’s my best shot at an explanation.

Each government entity – including counties, cities, and school, fire, library and port districts – decides each year how much money it needs to collect, subject to voter-approved limitations on annual increases, and sends that number to the county assessor. The assessor sets the tax rate needed to collect that amount, based on the total value of property in a district, then adds up the rates for all the taxing districts to come up with the total rate each property owner pays.

The assessed values do go up and down based on the market. But that has no bearing on the amount of money taxing districts collect. For example, if a library district needs $100,000 this year and its district has a total property value of $100 million, its tax rate will be $1 per $1,000 of assessed valuation, meaning a bill of $200 on a $200,000 home.

If it needs the same amount of money next year, but values declined 10 percent, the assessor would raise the tax rate to $1.11 per $1,000 of assessed valuation. That $200,000 house is now worth $180,000, but still pays $200 to the library district, thanks to the higher rate.

Voter-approved limits on annual tax increases do not limit increase in the tax rate, just the total amount of money a district collects.

So what’s the point of assessed valuation? It’s an equalization measure, designed to ensure everyone pays his or her fair share based on the value of property RELATIVE to other properties. Theoretically, it could be based on a 100-point scale completely divorced from market value.

That means changes in your assessed value affect the amount of taxes you pay only if your property goes up or down RELATIVE to others in a specific taxing district. To take the example of my story in today’s paper, if Puyallup-area values are falling faster than those in the rest of Pierce County, Puyallup-area property owners should see the Pierce County portion of their property taxes go down, assuming Pierce County collects the same amount of money, while stronger areas would see their bills rise.

The housing downturn will affect tax revenues in a number of ways, including taxes on construction activity and the fact that those voter-approved limits on annual increases in tax collections do not include new construction. That means new homes and other buildings added to the tax rolls every year also bring in new money. Government officials would note, of course, that they also add to the services governments must provide.

Note: This is a seattlepi.com reader blog. It is not written or edited by the P-I. The authors are solely responsible for content. E-mail us at newmedia@seattlepi.com if you consider a post inappropriate..